Difference Between Corporate Finance & Investment

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Corporate finance has a definition of any financial or monetary activity that deals with a company and its money. Typically, the finance department deals with planning and budgeting where the accounting department focuses on recording what actually happened. In business, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.

Function

Both will use ROI or Return On Investment as a means to determine the best use of capital. In a corporation, the corporate finance department will serve as the life blood of the business. The planning and budgeting of the monetary activities will enable the organization to survive and grow, if those decisions are made effectively. Corporate finance enables the funding of the day-to-day operations of a business, while a business will invest excess capital as a secondary focus. The investment process will serve to maximize profitability within the business.

Time Frame

Typically, corporate finance will urgently prepare for the short term and plan for the middle term and long term. The continual monitoring of the short-term results will allow the corporate finance department to adjust the business plans and budgets. The investment focus will have less concern about the short term and find the middle term and long term as the critical time frames. Many businesses will use corporate investments as a way to strategically invest into new technology within their own industry.

Warning

Within a business, the management team tries to find the best use of its capital. In the short term, sometimes good investment choices can provide a better return than reinvesting that capital back into the business. However, a successful business should create barriers to entry and improve on its core competencies. Therefore, investment choices should not distract the business, but enhance the focus and direction of the corporation.

Benefits

Effective corporate financial decisions will provide a corporation the ability to continue to fund the daily operations as well as create excess capital to pay dividends or to make investments. If a corporation can make strategic investments, its corporate objective of maximizing shareholder profitability will be enhanced.

Considerations

Corporate finance and investments complement each other. The more someone understands corporate finance, the more he or she will understand a company's investments. The knowledge of corporate finance provides an investor the insight to analyze business investments with better accuracy. Conversely, having an understanding of investments and the underlying economy will enable someone to create better budgets and plans for corporate finance.

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